NEW YORK (AP) – Sam Bankman-Fried has received many accolades for rapidly rising to superstar status as head of cryptocurrency exchange FTX.: The savior of crypto, the latest force in democratic politics, and potentially the world’s first trillionaire.
Comments about now-30-year-old Bankman-Fried range from bemused to hostile after FTX filed for bankruptcy protection Friday, leaving its investors and customers feeling defrauded and many others in the crypto world fearing repercussions. Bankman-Fried herself could face civil or criminal charges.
“I have known him for many years and what just happened is shocking,” said Jeremy Allaire, co-founder and CEO of cryptocurrency company Circle.
Under Bankman-Fried, FTX quickly grew to become the third largest exchange by volume. The surprising collapse of this nascent empire has sent tsunami-like waves through the cryptocurrency industry, which has seen its fair share of volatility and turmoil this year, including a sharp drop in the price of bitcoin and other digital assets. For some, the events are reminiscent of the domino-like failures of Wall Street firms during the 2008 financial crisis, especially now that supposedly healthy firms like FTX are failing.
A venture capital fund wrote down an investment of over $200 million in FTX. Crypto lender BlockFi halted customer withdrawals on Friday after FTX sought bankruptcy protection. Singapore-based exchange Crypto.com saw a surge in withdrawals this weekend due to internal reasons, but some of the action could be attributed to raw nerves from FTX.
“Sam what have you done?” Ryan Sean Evans, host of the crypto podcast Bankless, tweeted following the bankruptcy filing.
Bankman-Fried and his company are under investigation by the Department of Justice and the Securities and Exchange Commission. The investigation potentially centers on the possibility that the firm may have used customer deposits for Bankman-Fried’s hedge fund, Alameda Research, to place bets in violation of US securities law.
“This is a direct result of a rogue actor breaking every single basic rule of financial responsibility,” said Patrick Hillman, chief strategy officer at FTX’s biggest competitor, Binance. Binance appeared ready to make a move early last week to salvage FTX, but backtrack After reviewing the books of FTX.
The ultimate impact of the FTX bankruptcy is uncertain, but its failure would result in the destruction of billions of dollars in assets and cast even more doubt on cryptocurrencies at a time when the industry could use a vote of confidence.
“I care because it is retail investors who are suffering the most, and because too many people still wrongly associate bitcoin with the scammy ‘crypto’ space,” said Corey Klipstein, CEO of Swan Bitcoin. Klippsten is publicly enthusiastic about bitcoin but has long been deeply skeptical about other parts of the crypto universe.
Bankman-Fried founded FTX in 2019, and it has grown rapidly – it was recently valued at $32 billion. The son of Stanford University professors who was known for playing the video game “League of Legends” during meetings, Bankman-Fried attracted investment from the highest echelons of Silicon Valley.
Sequoia Capital, which has invested in Apple, Cisco, Google, Airbnb and YouTube for decades, described its meeting with Bankman-Fried as “talking to the world’s first trillionaire”. After the Zoom meeting in 2021, many of Sequoia’s partners became excited about Bankman-Fried. After several more meetings, Sequoia decided to invest in the company.
“I don’t know how I know, I just do. SBF is a winner,” wrote Adam Fischer, a business journalist who wrote a profile of Bankman-Fried for the firm, including Bankman by his popular online moniker. Fried was mentioned. The article, published in late September, was removed from Sequoia’s website.,
Sequoia has zeroed out its $213 million investment. A pension fund in Ontario, Canada also reduced its investment to zero.
“Naturally, not all investments in this early-stage asset class have performed as expected,” Ontario Teachers’ Pension Fund said in a brief statement.
But until last week, Bankman-Fried was seen as something of a white knight for the industry. Whenever the crypto industry had a crisis, Bankman-Fried was the man to fly in with a rescue plan. When online trading platform Robinhood was in financial trouble earlier this year — collateral damage from falling stock and crypto prices — Bankman-Fried jumped in to buy a stake in the company as a sign of support.
When Bankman-Fried bought the assets of bankrupt crypto firm Voyager Digital for $1.4 billion this summer, it brought relief to Voyager account holders whose assets have been frozen since its failure. That defense is now in question.
FTX’s failure began after crypto news outlet CoinDesk published a story based on a leaked balance sheet from Alameda Research. The story found that the relationship between FTX and Alameda Research was deeper and more connected than previously known, including that Alameda loaned high amounts of its own token FTT to help FTX make cash. was giving. This prompted mass withdrawals from FTX, causing the crypto firm to experience a very old financial problem: a bank run.
“FTX created a worthless token out of thin air and used it to make its balance sheet sound much stronger than it actually was,” Klipstein said.
As the king of crypto, Bankman-Fried’s influence was starting to pour into political and popular culture. FTX buys major sports sponsorship with Formula One racing and bought the naming rights to an arena in Miami, and ran Super Bowl commercials featuring “Seinfeld” creator Larry David. They pledged to donate $1 billion to Democrats this election cycle – their actual donations were in the millions – and prominent politicians like Bill Clinton were invited to speak at FTX conferences. Football star Tom Brady invested in FTX, as did his supermodel soon-to-be ex-wife, Gisele Bündchen.
Bankman-Fried was also starting to put its financial weight into the media. He was an early investor in Semaphore, a news startup run by former BuzzFeed editor-in-chief and New York Times columnist Ben Smith. He also donated $5 million to the investigative news outlet ProPublica.
Bankman-Fried had been the subject of some criticism prior to the collapse of FTX. While he operated FTX largely out of US jurisdictions from his headquarters in the Bahamas, Bankman-Fried was increasingly vocal about the need for more regulation of the cryptocurrency industry. Many supporters of crypto oppose government surveillance. Now, the collapse of FTX may have helped make the case for tighter regulation.
One of those critics was Changpeng Zhao, the founder and CEO of Binance. The feud between the two billionaires spilled over to Twitter, where Zhao and Bankman-Fried collectively command millions of followers. Zhao helped kickstart FTX’s doomed withdrawals when he said that Binance would sell its stake in FTX’s crypto token FTT.
“What (asterisk) (asterisk) t shows … and it’s going to be crypto’s fault (rather than a people’s fault),” Zhao wrote on Twitter on Saturday.
Reporters Michael Balsamo in Washington and Kathy Busewitz in New York contributed.
For more AP coverage of cryptocurrency, visit: https://apnews.com/hub/cryptocurrency
This story has been corrected to say that Adam Fischer is a business journalist who worked freelance for Sequoia Capital. A previous version of the story identified Fischer as an employee of Sequoia.